Crude Futures Reverse Down on Progress in Iran Discussions

Brian L Milne
By  Brian L. Milne , DTN Refined Fuels Editor

CRANBURY, N.J. (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent futures on the Intercontinental Exchange reversed lower to end the session down, with West Texas Intermediate and the international crude benchmark Brent contract reversing off 2 1/2-month highs. The losses followed reports of significant progress in negotiations over Iran's nuclear activity, raising the prospect for increased oil exports from the Islamic Republic following years of U.S. sanctions.

The Biden administration, working with European partners, has expressed a strong desire to return to the 2015 Joint Comprehensive Plan of Action that restricted Iran's nuclear ambitions for several years that was agreed to by Tehran, Washington and the permanent members of the United Nation's Security Council -- China, France, Russia, United Kingdom, along with Germany and the European Union. The United States and Iran are talking through intermediaries, with Tehran refusing to talk directly with Washington until all sanctions on its regime are removed.

The attempted revival of the agreement follows the U.S. withdrawal from the agreement three years ago on May 8, 2018, with the Trump administration pursuing stringent sanctions on Iran for its adventurism in the Middle East, including sanctions on Iran's oil exports that were considered successful in choking off much of Iran's oil from reaching foreign buyers. Former U.S. President Donald Trump called the JCPOA a terrible agreement, as it allowed Iran to continue building ballistic missiles, failed to slow Tehran's political interference in Middle Eastern countries, while allowing Tehran to resume enriching uranium at greater levels after several years of restrictions.

There are reports progress reached in Vienna through Tuesday will be announced Wednesday, with speculation of a breakthrough tamped down amid unresolved issues. Those comments prompted oil markets to believe sanctions on Iran's oil exports will be removed.

In addition to Biden's desire to return to the deal reached during the Obama administration, Tuesday's news comes ahead of Iranian presidential elections in June, with the country's hardliners, who are against the agreement, expected to make strong gains. It also follows news on Monday that Iran's long-time foreign minister, Mohammad Javad Zarif, who successfully negotiated the agreement with then U.S. Secretary of State John Kerry, would retire after next month's elections.

Iranian crude production has ramped up following Biden's presidential win in November, with the Organization of the Petroleum Exporting Countries reporting Iran crude output at 2.393 million barrels per day (bpd) in April, up 440,000 bpd or 22.5% since October 2020. Iran oil exports could reach 2 million bpd later this year, some analysts suggest.

The speculation overshadowed a weakened U.S. dollar, which slumped to 89.675 in index trading Tuesday, matching the Feb. 25 low, before settling down 0.408 at 89.734. The U.S. dollar and WTI futures have an inverse relationship.

NYMEX June WTI futures settled down $0.78 at $65.49 per barrel (bbl) after trading in a $64.11 by $67.01 trade range, and in front of expiration Thursday afternoon. July WTI futures settled at $65.50 per bbl. ICE July Brent crude futures reversed down from a $70.24-per-bbl high to end the session $0.75 lower at $$68.71 per bbl.

NYMEX June RBOB futures settled up 0.26 cent at $2.1609 gallon, paring an advance to a $2.18 high, with the June ULSD contract ending the session down 0.4 cent at $2.0564 gallon, reversing off a $2.0777 high.

The strength in the gasoline contract follows the five-day shutdown of the 2.5-million-bpd Colonial Pipeline network due to a ransomware attack, and ahead of the Memorial Day weekend later this month. The outage along the 5,500-mile pipeline network sparked panic buying, leading to outages across the U.S. southeast north to the lower mid-Atlantic.

The pipeline is fully operating, although the company's nomination system "experienced intermittent disruptions this morning due to some of the hardening efforts that are ongoing and part of our restoration process," the pipeline operator said today. "These issues were not related to the ransomware or any type of reinfection."

Last week's pipeline outage is expected to widely skew weekly inventory data due out Tuesday afternoon by the American Petroleum Institute and the Energy Information Administration Wednesday morning. Market estimates were all over the map, with crude stocks widely seen to have increased by somewhere near 1.5 million bbl, and for gasoline stocks to have been drawn down by 1 million bbl. Distillate stocks are also expected to have been drawn down by about 500,000 bbl, although these estimates are averages of expectations.

Brian L. Milne can be reached at brian.milne@dtn.com

Brian L. Milne can be reached at brian.milne@dtn.com

Brian Milne